Even when you thought Amazon (NASDAQ: AMZN) had expanded into every sector it could, the company is currently developing its own courier and ocean freight forwarding services in hopes of disrupting multi-billion dollar industries with its technological prowess. While Amazon runs many aspects of its business in-house--from inventory management to payment--the last puzzle to bring all of the company's needs internal is shipping and delivery infrastructure.
Currently Amazon spends over $4.2 billion each year (just under 5 percent of net sales) in shipping costs to bring free and expedited shipping to consumers, which makes it seems logical that the company would hope to develop its own delivery network. And beyond simply internal use, many analysts are predicting that Amazon will make their delivery service available to third-parties, just as it did with its e-commerce platforms.But that is much easier said than done, especially because of how crowded both markets are.
On the courier side, Amazon would have to duel with UPS (NYSE: UPS) and FedEx (NYSE: FDX) to dominate package delivery within the United States. To do so, the company has quietly started leasing 20 jets to begin an air-delivery service as well as purchased truck trailers to increase ground shipping capacity. Taken together with Amazon's current crowdsourced delivery push, the company may have a major impact on domestic shipping should it expand, especially because Amazon thrives with technological precision which is surely a plus in the logistics industry.
Beyond the domestic shipping side, Amazon is preparing to disrupt the $350 billion ocean freight business with its new registered status in China as a freight forwarder, or "non-vessel operating common carrier." As such, Amazon and its Chinese subsidiaries will not operate ships, but subcontract ocean freight services in the hopes of connecting global sellers to the company's American consumer base. By subcontracting a large amount of cargo space at once, Amazon would be able to buy space at lower rates and pass on those savings to smaller overseas merchants who otherwise pay large sums to export their goods. Indeed, Chinese merchants are eager to profit off American consumers, but smaller sellers have a hard time getting their products to the States without losing out on larger profit margins because of high shipping costs.
This move finally brings Amazon head-to-head with Chinese e-commerce giant Alibaba (NYSE: BABA) who operates in the similar ocean freight space, but Amazon's arsenal of tech products may give it a leg up. Going beyond Alibaba's offerings, Amazon hopes to have a "one-click" shipping experience for merchants where they go online or on their mobile phones to book international shipping space and all the transnational paperwork will be completed by the company internally.
Further, with a push into the global shipping and delivery space, Amazon can position itself as moving into the financial services industry in the future--giving loans to merchants, processing international payments, and consulting sellers on international customs and tax issues.
Amazon's silent entrance into the logistics industry should cause concern for more traditional companies. In hopes to counter Amazon before they grow towards market dominance, companies like UPS and FedEx need to invest strongly in technological innovation in a way similar to Amazon in order to stay competitive down the line.